Stocks move higher on hopes for budget deal

Lawmakers kept Wall Street on its toes Wednesday as investors waited for signs of progress on the "fiscal cliff."

Stocks shrugged off an early loss and were higher in early afternoon trading. As of 12:40 p.m. the Dow Jones industrial average was up 74 points at 12,951. It had been down as much as 112 points shortly after the opening bell.

The Standard and Poor's 500 was up five points to 1,404. The Nasdaq composite was up 10 points at 2,977.

Huge tax increases and spending cuts will come into effect Jan. 1 if no deal is reached. Economists say the measures could push the U.S. back into recession. Democrat Erskine Bowles said Tuesday in a meeting that the White House was flexible on the level of top tax rates, according to the Wall Street Journal. That report bolstered expectations that a compromise could be reached.

"We're all on pins and needles waiting for every bit of news, or rumors, coming out of Washington," said Ryan Detrick, a Cincinnati, Ohio-based technical analyst at Schaeffer's Investment Research. "That's what's Wall Street is focused on. Everybody is watching the fiscal cliff."

Concern that the U.S. will go over the "cliff" has weighed on stocks since the Nov. 6 elections returned a divided government to power, with President Barack Obama staying in the White House and Republicans retaining control of the House.

In economic news Wednesday, U.S. sales of new homes dipped 0.3 percent in October though remain up 20.4 percent for the year, according to a government report. Stable home prices suggest the housing market is steadily recovering.

Investors will also look will also look to the Federal Reserve for indications about the strength of the economy. A Fed snapshot of business conditions around the nation, covering October through mid-November, will be published at 2 p.m.

The yield on the 10-year Treasury note fell to 1.62 percent from 1.64 percent.

Among stocks making big moves:

— Chipmaker Analog Devices fell 27 cents to $39.85 after it said sales fell 3 percent in the third quarter due to weak economic conditions and global uncertainty.

— Costco, the wholesale club operator, gained $4.50 to $101 after the company said that it would pay a special dividend of $7 a share next month, in addition to the regular quarterly dividend it pays shareholders.